CEO Guide to Technology

Companies Shed Initial Resistance to iPhone

Michael Loo didn't want to become an iPhone user at first. "I really fought it quite hard," he says. As vice-president for global IT at telecom equipment vendor Avaya, Loo was concerned that the phone might not keep corporate data secure. Another beef: the iPhone's lack of a keyboard. For a year, his company declined to provide support for employees who wanted to use the device at work. Loo held out even longer.

But Loo and his employer have had a change of heart. In July 2008, when Apple (AAPL) officially released a version of iPhone software with beefed-up security and better support for corporate e-mail, Avaya gave employees the green light. Less than a year later, Avaya counts about 998 iPhone users out of about 9,800 who carry mobile devices. Loo caved a couple of weeks ago.

Like Avaya, many U.S. corporations are embracing the iPhone after initial resistance. Research In Motion's (RIMM) BlackBerry is still the leading smartphone for U.S. corporations, but the iPhone is gaining ground. In a survey of 127 large and midsize companies conducted by consulting firm Osterman Research on behalf of software provider Neverfail, 20% said they supported the iPhone in 2008, compared with 82% that supported BlackBerry devices and 66% that supported devices that run Microsoft's (MSFT) Windows Mobile. Yet, when asked which devices they planned to support in 2009, 44% of those companies said they'd support the iPhone. Support for BlackBerry dropped to 75% and for Windows Mobile to 64%.

Gaining Ground

Apple makes it easier for companies to reverse their iPhone opposition in part through upgrades to the software that make the device more business friendly. A version due in June, iPhone 3.0, will add security and management features expected to make it more attractive to large companies. "It's too early for iPhone to be a serious competitor to BlackBerry in the enterprise, but a year from now it will be," says Ted Schadler, vice-president and principal analyst at Forrester Research (FORR) who on Apr. 14 published a report on iPhone use by enterprises. Schadler points to Oracle (ORCL) and Kraft Foods (KRFT) as two examples of companies that have made the leap. In January 2009, Oracle counted about 4,000 employees with iPhones in its global workforce of about 86,000. That same month, about 2,000 Kraft employees—almost half the company's mobile users—carried iPhones. Schadler says that by the end of 2009, Kraft expects to have 4,000 to 5,000 workers using the device. That represents about 4% to 5% of its total workforce.

Much of the impetus for widening iPhone adoption in business comes from employees themselves. People are purchasing their own smartphones and using them at work to access corporate data or networks. Almost 40% of the smart phone purchases in the U.S. in 2008 were made by individuals rather than corporations, according to IDC. Also in 2008, about 7.3 million smartphones in the U.S. were brought into the workplace. That's expected to grow 43.5%, to 21.5 million, in 2012, IDC says. Economic malaise is accelerating the trend as businesses that once frowned on employee-owned devices are revising the policy as a way to ask employees to share in the cost of equipment. "Companies are looking to tighten their belts and still keep people as productive as possible," says Sean Ryan, research analyst of mobile enterprise at IDC.

In 2008, about 173.6 million smartphones were sold worldwide, according to market research firm iSuppli. Nokia (NOK) sold 60.5 million, RIM sold 22.6 million, and Samsung and Apple tied for third place with 13.7 million each. In U.S. corporations today, though, the top three operating systems are BlackBerry, Windows Mobile, and the iPhone OS.

Edging into the C-Suite

Corporate hesitation also diminishes when the CEO or other high-level executives start bringing iPhones to work. Executives say they like the iPhone's Web browsing and multimedia capabilities as well as its ease of use. "IT won't tell the CEO that they won't support it," says Michael Osterman, principal at Osterman Research. This is reminiscent of the way BlackBerry made its way into corporations. Gabe Zichermann says that about 30% of the users of BeamME, his company's iPhone app for exchanging contact info, were C-level executives.

At business analytics software company SAS, co-founder John Sall was among the first to ask the IT department to support his iPhone when it was first released in 2007. "Considering his relationship and his role in the company, we managed to meet that need," says Bob Bonham, senior director of IT at SAS. When the second version of the iPhone software was released in 2008, it included ActiveSync, software that made it easy for the IT department to connect the devices to Microsoft Exchange. At that stage, SAS made iPhones available to employees if there's a business need for them. "Our predominant device is still the BlackBerry," Bonham says. He adds that SAS will eventually let employees choose whether they want to use a BlackBerry, Windows Mobile device, or iPhone. Today, employees who bring their own iPhones to work can have them hooked up to corporate e-mail. Currently, SAS supports about 1,000 BlackBerry devices, 100 to 200 iPhones, and 50 to 100 Windows Mobile devices. The company's total workforce is more than 11,000.

The tech industry isn't alone in early adoption of the iPhone. Others include transportation, entertainment, retail, and life sciences, says Forrester's Schadler. They've become especially popular with doctors. For years, Zach Hettinger, a physician in Rochester, N.Y., carried both a cell phone and a Palm (PALM) device that contained a pharmacy database and other work-related applications, such as vaccine schedules and pregnancy calculators to estimate due dates. "With the iPhone, all those references have become accessible, so that you only need one device," Hettinger says. Today he carries only an iPhone, and he says that his father, also a physician, recently made the switch as well.

Lack of Support

The iPhone isn't for every company, and it hasn't been widely adopted in certain industries, such as banking and insurance, says Forrester's Schadler. Plenty of companies haven't yet decided to let employees use iPhones at work. In July 2007, American Airlines (AMR) Chief Information Officer Monte Ford told BusinessWeek that his company would not support the iPhone due to security concerns. Today, iPhones are still verboten at American Airlines. BusinessWeek parent The McGraw-Hill Companies (MHP) also does not support the iPhone.

Companies that don't support the iPhone say they are inhibited for several reasons. Antenna Software specializes in products that help companies manage mobile devices. In December, the company released results of a survey of its customers in which 49% of respondents said the biggest barrier is the fact that AT&T (T) is the only U.S. service provider. Among respondents, 40% said they are concerned about the increased costs of supporting another mobile device. About one-third of respondents wanted better tools to manage the device, like shutting off such features as the camera or the ability to do a remote wipe of data if the phone were lost. While Apple has made it easy to download apps, it's a little bit trickier for IT departments that want to update hundreds or thousands of devices at a time—that was a concern for about 22% of respondents. "One of the big challenges for Apple is that they don't have a good story around mobile device management," says Stephen Drake, program vice-president at IDC. Forrester's Schadler says that Kraft has encountered problems with calendar synchronization.

Still, Avaya is mostly pleased with the devices. "The iPhones are a bit expensive [to operate]," says Avaya's Loo. "The majority of the expense is in the data plan, not in the voice side of it; but we're pretty satisfied with what we have right now." Apple has said it will address some outstanding issues with iPhone 3.0 this summer, but it declined to elaborate for this story.

Yet those issues aren't stopping some companies, such as IT consulting firm Dimension Data from supporting it. When iPhone 2.0 was released, the Dimension Data Americas region, with 1,000 employees, was quick to support it. Darren Augi, vice-president for IT, was the first iPhone user within the corporation, followed closely by CEO Jere Brown and CTO Mark Slaga. About 100 employees at Dimension Data Americas now use iPhones.

Augi says he'd made a hobby out of testing new mobile devices. "I had been looking for the perfect device for a long time," he says, but would often discard them in favor of the next new thing. That changed last year when Apple released iPhone 2.0. "Nothing has lured me away from it yet," he says. "It's the best device I've ever worked with—I don't see leaving it."